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Fintech: Replacing Humans or Making Them Better?

April 7, 2015

If you haven't heard of Fintech in the past few years, you're probably living in a Faraday cage. Fintech companies use technology to disrupt existing financial services. This entrepreneurial industry has sprung from disgruntled financial employees and even large banks themselves, bleeding into an industry that has historically resisted change, technology, and innovation. It encompasses everything from payments to trading, and there is no question that Fintech innovations are stirring up controversy.

It used to cost (at a minimum) between $200 and $500 to execute a trade in the stock market. Today, due to the rise of companies like RobinHood, you can execute a trade for free. Transferring money overseas used to be an arduous and expensive process, taking weeks to execute. Now companies like TransferWise are performing these transactions for up to 10x less than the typical bank. Robo-advisors like Wealthfront are eliminating the need altogether (especially among millennials) for a financial advisor.

It's easy to see why this revolution has some people worried. In many cases, the argument could be made that these companies are eliminating the need for many different financial services jobs and even for existing institutions altogether. But is it the case for all fintech companies? At Intrinio, we believe Fintech has the potential to improve existing businesses rather than eliminating them. Far from eliminating the need for the human touch in financial services, new technologies can increase the impact of these companies and their employees by providing the tools they need to provide value for their clients.

Intrinio's technology operates primarily within the realm of Valuation. We've built an application that automates a large part of the valuation process for publicly traded companies. A user simply enters a ticker, adjusts a few assumptions, and is given the intrinsic value or inherent worth of the company. Any seasoned Valuation professional will tell you that valuing a company is both an art and a science. The science is undeniable, typically relying on a discounted cash flow model (DCF), and the calculation of a weighted average cost of capital (WACC). Although the valuation relies heavily on these methods and calculations, human insight is invaluable to the model. For example, an analyst might know that pharmaceutical companies tend to perform well in recessions (so don't plunge those revenue growth assumptions quite so much) or that the cost of oil has risen substantially (so lower the NOPAT margin assumptions for your valuation of an airline with an unhedged gas position). No matter what, human input is and always will be of paramount importance in valuing companies.

Having come from both financial and technological backgrounds, the team at Intrinio fully understands the value of Fintech for human beings, and this knowledge forms the basis for the design of our platform. We wanted to build a technology that would automate the mindless parts of performing a valuation so that users can spend more time adding value where no machine can. Our Valuation platform doesn't eliminate the need for a human - rather it makes the job of valuing companies easier and increases the quality of analysis.

Intrinio is just one example of the ways in which Fintech is transforming the financial landscape. Not everyone is building technological innovations that enable humans to do their jobs better - some are building technologies that remove the need for human work altogether. But how much should this worry us? Is this a change we should resist? Even the big banks have begun to embrace these new disruptive companies, funding them, incubating them, and even acquiring them.

Peter Thiel, a well-respected entrepreneur, venture capitalist, early investor in Facebook and co-founder of PayPal, has spoken out against resistance to technological change. His discussion focuses mainly on robots, but the parallels are hard to ignore. He claims "It's a problem we would like to have...It would free people up to do far more productive things." The team at Intrinio has built our platform to do just that. We automate the repetitive, manual and mindless parts of gathering financial data and performing a valuation so that the user can spend their time more productively and focus on what matters. Time usually spent manually entering data or ensuring that formulas are calculating correctly can instead be focused on the assumptions driving the model.

While it's inconceivable to directly compare the Fintech revolution to the larger revolutions of the past, it's helpful to take a look back and compare. During the Second Industrial Revolution of the late 1800's innovations such as mass production and production lines significantly increased productivity. It took less people less time to make products because of the steam engine. Jobs were lost, but more were created. Intrinio’s platform allows analysts to produce more valuations in less time. As more of an analyst's time is freed up to focus their attention on details, the quality of their work will improve.

We see today, just as we did with the Industrial Revolution, a resistance to new technologies. Is this Luddism, or simply a concern for the future of human work? We have already begun to observe labor’s reaction to technological displacement. And while some Fintech companies are undoubtedly displacing workers, the argument can be made that they are being placed into more effective positions. At Intrinio, we strive to continue building technological innovations that create more efficient workers, higher quality work, and positive change within the financial industry.